Big 4 Conservatism Around the World

Richard Chung (), Michael Firth (), Jeong-Bon Kim () and Lei Pang ()
Additional contact information
Richard Chung: Griffith University
Michael Firth: Lingnan University
Jeong-Bon Kim: City University of Hong Kong
Lei Pang: Hong Kong Baptist University

A chapter in Corporate Governance in Emerging Markets, 2014, pp 197-238 from Springer

Abstract: Abstract Conservatism is a long-established underlying principle of accounting but its implementation has come under the spotlight in recent years following the spate of well-publicized corporate collapses in the U.S. and elsewhere. Previous studies have shown that the Big 4 audit firms are more conservative than the non-Big 4 in the U.S. The current study examines whether the U.S. findings extend to other countries. In doing so, we make use of a relatively new measure of conservatism, namely, the C-score developed by Khan and Watts. We find that the conclusion drawn from U.S. studies, namely that the Big 4 are more conservative, extends to the international setting but only under certain conditions. Specifically, the Big 4 are more conservative in those countries where litigation and reputation risks, broadly defined, are high. This increase in conservatism represents a rational response by the Big 4 auditors to their greater exposure, vis-a-vis the non-Big 4 auditors, to litigation and reputation loss in those countries.

Keywords: Investor Protection; Audit Firm; Inside Trading; Litigation Risk; Conservative Accounting (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:csrchp:978-3-642-44955-0_8

Ordering information: This item can be ordered from
http://www.springer.com/9783642449550

DOI: 10.1007/978-3-642-44955-0_8

Access Statistics for this chapter

More chapters in CSR, Sustainability, Ethics & Governance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().